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Looking at Business Models – Consumer Behaviors and Gross Margins

startup business models, waves, consumer behaviors

While sipping on my morning green tea, I’m inspired by Venture Stories’ recent podcast episode where Erik was interviewing Charles Hudson of Precursor, where they codify Charles’ investment thesis, markets, business models, among many other topics. A brilliant episode, if I say so myself! And it got me thinking.

Some market context

In the past few months, I’ve been chatting with a number of founders who largely seem to gravitate towards the subscription business model. Even pre-COVID, that seemed to be the case. And this notion was and is further perpetuated where a plethora of VCs turned their attention to XaaS (X-as-a-service).

Why? Pre-COVID, the general understanding was that consumers were:

  1. More expensive to acquire,
  2. And, harder to retain,

…which I shared in one of my February posts. I’d even heard some investors say: “Consumer social is dead.” Although I personally didn’t go as far as to illustrate the death of a vertical, I had become relatively more bearish on consumer than I did when I started in venture. Clearly, we were wrong. The question is: how much of this current situation will still hold true post-COVID? And honestly, your guess is as good as mine. But I digress.

Given the presumption that the consumer industry was faltering, many VCs re-positioned their theses to index more on enterprise and SaaS models. Models that had relatively fixed distribution channels and recurring revenue. It became some form of ‘guarantee’ that their investments could make their returns. And as the demand for startups shifted, supply followed.

The Business Models

Though there seemingly has been an overindexing of subscription models in the consumer space, I’m still an optimist for its future. The important part is to follow consumer behavior.

  • What do their consumption patterns look like?
  • What do their purchasing patterns look like?
  • How do customers think about value?

Here is a set of lens in which I think about business model application:

Subscription“One-off”
Continuous consumption patterns
>3-4 times in a month
(Ideally, >3-4 times per week)		Discrete consumption patterns
~1-2 times a year
Extremely episodic in nature
Proactive, expectant behaviorReactive behavior
Examples:
Food
Groceries
Music
Education		Examples:
Moving homes
One-off Conferences
Travel
Car
Note: The examples are generalized. The business models will depend on your target market. For example, travel for the average family may not happen on a recurring basis, but travel for a consultant happen weekly (pre-COVID).

The Extremes of Gross Margins

Of course, I can’t talk about business models without talking about profits. The ultimate goal of any business model is to realize returns – gross margins. Unfortunately, there’s no silver bullet on how you price your product. While you find the optimum price (range) for your product A/B testing with your customers, here’s a little perspective onto the two extremes of the spectrum.

  1. If you have insanely high margins, expect lots of competitors – either now or in the near future. Expect price-based competition, as you may most likely, fight in a race to the bottom. Much like the 1848 California Gold Rush. Competitors are going to rush in to saturate the market and squeeze the margins out of “such a great opportunity”.
  2. If your margins are incredibly low, as Charles said on the podcast, “there better be a pot of gold at the end of the rainbow.” You need extremely high volumes (i.e. GMV, “liquidity” in a marketplace) to compensate for the minimal cut you’re taking each transaction. A fight to monopolize the market. I’m looking for market traits like:
    1. Growing market size.
      • Ideally heavily fragmented market where you can capture convoluted, antiquated, and/or unconcentrated processes in the status quo.
      • Why unconcentrated? Don’t underestimate the power of your incumbents’ brands and product offerings. Like don’t jump in ad tech if you’re just going to fight against the Google and Facebook juggernauts, who own 80% of the ad market.
    2. Insane network effects.
    • For example, payments or food delivery. Food delivery is one where you have to reach critical mass before focusing on cash flow/profitability. I get it. It’s a money-eating business… until network effects kick in. Sarah Tavel wrote a Medium article about this where she explains it more elegantly than I have.

In closing

I’ve seen many founders end up taking their models for granted or sticking to a single generic revenue structure. But the best founders I meet make this a very intentional part of their business. Sometimes, even having different revenue streams for different parts of the business. If that’s the case for you too, Connie’s piece about multimodal models may be worth a read.

Photo by Denys Nevozhai on Unsplash

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#unfiltered #17 My Favorite Questions from Social Experiments – On Love, Emotions, Candor, and Goals

mirror, reflection, introspection, thinking questions, my favorite questions from social experiments

I’ve given myself the last two weeks to focus on introspection. Rediscovering cross sections of my life – crystallizing them in amber – to find where I can improve the most in. And in the process of doing so, I found inspiration in. I’ve known for a long time that I was, by no means, the smartest person out there. Arguably, my best ideas find the roots of their ‘originality’ in insights from others. From…

  • Friends
  • Founders
  • Investors
  • Subject-matter experts (SMEs)
  • Podcasts
  • YouTube videos
  • Academic journals
  • Blogs
  • And, really creative and really, really passionate people, where their passion is contagious.

… just to name a few.

But, that’s the best part!

Though it wasn’t my initial intention to do so, some of my favorite, most curiously introspective, most thought-provoking questions came from my guests during social experiments, particularly those who partook in Brunches with Strangers and Hidden Questions. Frankly, I can’t take credit for any of them. And just as I learned so much about them and myself from each, I hope you’ll be able to do the same. I don’t expect every question to resonate with you, but I suspect at least a small handful will. If so, my only ask is that you pay it forward in your own meaningful way.

Between 120+ guests between the two of the experiments, here are some of my favorite.

On Love and Emotions

  • When was the last time you said “I love you”?
  • When was the last time you wished you had said “I love you”, but didn’t or couldn’t?
  • Who was the last person you lost in your life that hurt you deeply (i.e. breakup, death, loss of friendship, etc.)?
  • When was the last time you uncontrollably cried?
  • When was the last time you genuinely smiled?
  • What emotion have you given an overemphasis on in the past year?
  • When was the last time you were disappointed in yourself? Why?
  • When was the last time you looked yourself in the mirror and thought “I’m killing it”?What might have sponsored that emotion?

On Lack Thereof

  • Is there someone you pretend to like but don’t? If so:
    1. What is stopping you from sharing your thoughts candidly with them?
    2. What is stopping you from liking them?
  • How many friendships do you regret having broken and never healed? Why?

On Candor to Others and Yourself

  • What are 2-3 things you look for in a person/friend before you are comfortable sharing a secret? How would you prioritize those 2-3 traits?
  • What are you dishonest to others about?
  • Why do you lie to yourself?
  • Over the past year, what have you gotten better at saying ‘no’ to?
  • What are some contrarian beliefs you hold deeply to be true?
    • (Also seen asked as) What is an unpopular opinion you have?
    • Who have you told? Or have you told anyone else?
  • If you could pass 1 value/trait down to your child(ren), what would it be?
  • If there was 1 trait that you could prevent your child(ren) from taking on, what would it be?
  • What is an unusual habit, or an absurd thing you love?
  • What is the best lie you ever told?
    • Do you believe it?
  • What is the most hurtful comment you once said, wrote, or expressed to another?
  • How often do you log on or log off of social media due to envy?

On Goals

  • Do(es) your long-term goal(s) scare you?
  • What’s the craziest thing you did for X?
    • Let X be any goal you’ve once had (i.e. job, relationship, family, grades, to learn, etc.)
  • What is something someone once said to you (good or bad) that keeps you motivated to this day?
  • What failure has set you up for success?
  • If you could title your own biographical movie, what would it be called? And what will it be called post-mortem?
  • What is your 10-year goal?
    • What’s stopping you from accomplishing it in 1 year?
    • If I held you at gunpoint, and told you that you had to reach this goal in 1 month, what do you have to do, starting from now?
  • If you could undo one decision you made in the future, what would that be?
  • What would you like to have written/said in your eulogy?

Photo by Nijwam Swargiary on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

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#unfiltered #16 Noticing My Biases – A 3-Part Exercise to Practice Your Cognitive Elasticity on People

Last week, I wrote a piece inspired by a conversation about diversity, and more importantly, the explicit and implicit biases we hold. And over the weekend, I’ve had some time to think. To think and introspect once again about the biases – explicit and implicit – that I hold. I was specifically reminded of an exercise I learned 2 years ago.

Snapping briefly back in time, one of the most creative and self-aware founders that I know – having just graduated from a top-tier startup accelerator, taught me a mindfulness exercise that he uses every year at the Burning Man camp he leads. I’ve used his framework not only to help myself surface my own unconscious incompetence, but also as the curtain call for a few of my social experiments. He starts with having people focus on their conscious self, then gradually begin to explore our subconscious:

“Take a few seconds to notice who stood out to you. Whom you liked. Who might have caught your fancy. Who you plan to meet up or hope to meet up with after today.

“Now, notice whom you just didn’t click well with. Whom you didn’t like. Who you won’t catch up with after today.

But what I found the most profound was his prompt for the last few minutes of the exercise:

“And finally notice who, for whatever reason, you didn’t notice at all. And pause… and ask yourself why you didn’t notice them.”

Like what the above did for me, I hope this exercise helps provide another frame of mind when considering who we unwittingly leave behind. Why we do so. And how we can shed light to our unconscious to bring to our conscious. Hopefully, in the process, expanding the upper and lower bounds of our cognitive bandwidth.

Photo by Yeshi Kangrang on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow!

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Competitive Awareness as a Founder

sailing, competitor analysis, competitor awareness

For a while, I’ve been publicizing one of my favorite questions for founders.

“What unique insight (that makes money) do you have that either everyone else is overlooking or underestimating?”

I first mentioned it in my thesis. And, which might provide more context, was quickly followed by my related posts on:

For the most part, founders are pretty cognizant of this X-factor. B-schools train their MBAs to seek their “unfair advantange”. And a vast majority of pitch decks I’ve seen include that stereotypical competitor checklist/features chart. Where the pitching startup has collected all the checkmarks and their competitors have some lackluster permutation of the remaining features.

There’s nothing wrong with that slide in theory. Albeit for the most part, I gloss over that one, just due to its redundancy and the biases I usually find on it. But I’ve seen many a deck where, for the sake of filling up that checklist, founders fill the column with ‘unique’ features that don’t correlate to user experience or revenue. For example, features that only 5% of their users have ever used, with an incredibly low frequency of usage. Or on the more extreme end, their company mascot.

To track what features or product offerings are truly valuable to your business, I recommend using this matrix.

And, I go into more depth (no pun intended) here.

Competitive Awareness > Competitive Analysis

I’m going to shed some nuance to my question in the words of Chetan Puttagunta of Benchmark. He once said on an episode of Harry Stebbings’ The Twenty Minute VC:

“The optimal strategy is to assume that everybody that is competing with you has found some unique insight as to why the market is addressable in their unique approach. And to assume that your competitors are all really smart – that they all know what they’re doing… Why did they pick it this way? And really picking it apart and trying to understand that product strategy is really important.”

So, I have something I need to confess. Another ‘secret’ of mine. There’s a follow-up question. After my initial ‘unique insight’ one, if I suspect the founder(s) have fallen in their own bubble. Not saying that they definitively have if I ask it, but to help me clear my own doubts.

“What are your competitors doing right?”

Or differently phrased, if you were put yourself in their shoes, what is something you now understand, that you, as a founder of [insert their own startup], did not understand?

In asking the combination of these two questions, I usually am able to get a better sense of a founder’s self-awareness, domain expertise, and open-mindedness.

Photo by Ludomił Sawicki on Unsplash

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#unfiltered #15 “You’re Only Here Because You’ve Won” – Thoughts on Systems, their Flaws, and Better System Design through Diversity at the Table

swimming pool, diversity and inclusion

It was late that summer Friday evening. The sun had just crossed the horizon, changing the sky from blood orange red to a deeper indigo. Having put in 9000 yards, half of which were back-to-back sprints, we finally wrapped up our 2-hour practice, exhausted and slightly bewildered.

‘Twas our new coach’s first day on the job. We were expecting a chill practice, but this stranger made us work for it. And he did not beat around the bush. Relentless. In sum, he was the Gordon Ramsay of swimming.

Needless to say, he didn’t make the best impression on the team. And it was fair to say that some of my teammates were not his biggest fans. As they all shuffled out, and I had to wait for my parents to come pick me up from practice, I helped Coach with pulling the tarp covers over the pool.

Breaking the silence, he asks, “David, d’ya like to swim?”

“Of course,” I reflexively reply.

“Why d’ya like it?”

“It’s fun. I made friends. It helps me de-stress.”

“No.” And his next few words changed my perspective forever – both in swimming and in life. “You like to swim because you’ve won.”

Showing Gratitude

Obviously, in my prepubescent self, I took my coach’s comment for its face value. I like to swim because I’m good at it. Or at least, relatively speaking among my peers at that point in time. But as I grew older, that comment resonated with me on a different wavelength.

And a conversation with world-class hustler and founder of Fleeting (a company changing the landscape of trucking), Pierre*, last Friday reminded me exactly why. What I said then about why I liked to swim wasn’t completely wrong. I was able to achieve a moderate amount of success in the sport because my parents, coaches, teammates, and other friends supported and cheered for me. But I also forgot to thank one more for my accomplishments. The system itself.

*You can catch a glimpse of Pierre’s amazing story on Gimlet Media’s The Pitch.

The System

The system itself, included:

  • Rules,
  • Privilege of having access to swimming pools,
  • Privilege of having access to coaches and supportive and ambitious teammates,
  • And, the seemingly minor technicalities,
    • My lane’s timers had faster reaction times compared to my competitor’s lane’s timers. For context, in regional meets, each lane would always have 3 timers each to record when you touched the wall on your finish, and they would take the median time as the final result.
    • My lane’s touchpad was working, but my competitor(s) may have had to rely on manual timers since their touchpad didn’t work. So, when it came down to close races and who touched the wall first, I would win.

Of course, there were moments I was a victim to said system as well. And I remember those moments far better than when I won as a result of the system.

So what?

The thing is, when everything is going my way, I often take it all for granted. One of the only times I realize and realized that there might be any flaws to the system are when I am left out. I have been and am a member of society that has profited from the systems – in swimming, in higher education, in work opportunities, just to name a few. And I’m sure there are even more I have yet to realize that I have benefited from.

The past few weeks have been a wake-up call to America, to the world, and to myself for what we have all let pass without questioning. And admittedly, it may be difficult to assess what explicit and implicit biases we have when we, in the words of Coach, are “winning”.

Diversity at the Table

So, it comes down to two fronts: internally and externally.

Internally, introspectively, let’s ask ourselves:

  • What have we won as a result of? And, what are we still winning in?
  • What have we benefited or profited from?

And just as there are winners, there exist still who have yet to win. Or win in a more consistent manner.

Externally, we need to bring into the fold those who have yet to win to help us assess what systemic flaws exist in our status quo. Frankly, it’s incredibly difficult to find our implicit biases alone. I know that I’ve been reminded multiple times in my life by those who are more cognizant in those arenas than I was and have been. And, those underrepresented and underestimated by the system can use all the help they can get.

Together, I’m confident we can find a better solution.

Photo by Marcelo Uva on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups!

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#unfiltered #14 Morning Musings

sunrise, morning musings

Looking outside my bedroom window, I watch as the limitless canopy above me slowly changes from a velvety warmth to a crisp blue. The morning jays chirp in a heavy New York accent, asking when the next metro will arrive. They fly by my window several times, stealing a glance at me. Thinking “we haven’t seen this fella at this time before”. Their eyes beckon as if I held the answer to their pressing question. I don’t.

I’m writing this piece with a heavy arm, due to the Wii Sports I played with the fam yesterday evening. All the while, feeling its weight as I sip the green tea my dad bought from who knows where. He brought back the small, unassuming brown bag to our household last year, with neither a name or a place to call home. From my friends in the business, they tell me that’s a sign of high quality leaves. ‘Wouldn’t that also be a sign of the exact opposite?’ But I never had the courage to ask. Ironically, my palate betrays my thoughts. A warm earthy coating enveloping my tongue, with an expected bitter finish. My culinary friend sent me a copy of The Flavor Bible 2 days ago. In it, I learned a simple math equation:

Flavor = Taste + Mouthfeel + Aroma + “The X Factor”

Right now, in this moment, I think I finally graduated from high school algebra.

Google tells me we’re hitting a summer 94 here today. This year I have yet to don a farmer’s tan. On the brighter side, I’ve spared my skin the horror of being overcooked. A few friends and neighbors have gone to orchards and vineyards to cherry pick and brought back the spoils of war. Some coming back more cherry-looking than the cherries themselves.

Another friend, elated with starting her boutique culinary business, sent me a couple bags of agar powder to experiment with, which I have yet to open. Today, after work, I’ll put them to good use. Or bad use, if my human guinea pigs crinkle their nose from my mad science experiments. Who knows?

Well, I’m headed downstairs now to start another great day. This time, with a beautiful sunny side up with dash of furikake, smoked paprika, and good ol’ S&P.

Why am I writing this? There’s been a concentration of negative energy surrounding us right now. And when I say ‘us’, I use the royal ‘us’ in a loose sense here. In these special, turbulent times, life’s become increasingly stressful. For a handful of my friends and family, it’s easy to find someone or something to blame. In some cases, there is a responsible party. But in most others, the ‘blame’, if we need to give the beast a name, is shared in a much broader sense. And we forget the beauty in our world. What we’re grateful for. What we have lived to see in another spectacular day.

And once again, I’m using the royal ‘we’.

Many of my colleagues use the Five Minute Journal App – short snapshots of daily gratitude. The first thing they do every morning. But I think I’ll stick to longer expositions.

Photo by Sapan Patel on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups!

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#unfiltered #13 The Unlikely Marriage of Cuisine and Team-Building – Flavor Maps, Food Pairings and Bridgings, and How it Relates to Systems Thinking

broccoli, flavor mad science, recipes, team building tips

I met a founder (let’s call him Stan) recently who was about to close on his first big executive hire into a team less than 10 strong. Naturally, I asked what the rest of his team thought of that person. Stan replied, “I haven’t asked them yet.”

So, I subsequently followed up, “Were they able to meet him?”

“He’s been by our office, and I’m sure he’s had the chance to chat with them already.”

When he said that, two things stuck out to me:

  1. Stan’s use of “I’m sure…” implied neither that he was sure nor that he took care to verify.
  2. He seemed to have skipped a fundamental step in building a team. And by transitive property, how it would define his team’s culture.

The Culinary Parallel

Synonymously, a day later, my friend asked me, “How do you come up with your ideas for flavor mad science?”

You’re probably here thinking: “What the hell does this have to do with team-building and culture?” But bear with me here. I swear there’s a parallel.

Although, like all of my ideas and insights, I can’t say any of my flavor experiments are truly original, I always start off at the drawing board with flavor maps. And, you guessed it! Not even the concept of flavor maps is original. A few years ago, an amazing chef taught me this very trick of how he concepts new recipes every season at his critically acclaimed restaurant.

So, what’s a flavor map?

The idea of a flavor map is to start with a core ingredient – the star of your dish. And then slowly add other flavors and elements onto your diagram one by one. The catch is that every new flavor you add has to pair well with every single other flavor on that diagram.

Two flavor maps where I used green tea as the (co-)core ingredient.

Personally, I just try to think of a dish that I enjoyed, or know many other people enjoy, as the basis for a drawing a line between a pair. The reason I do so is that many generations of experts before me have already done the legwork to make these flavors work. And I’m just iterating off of their discoveries.

The more scientific approach is through flavor networks – specifically food-pairing and food-bridging. In summary, food-pairings are when you combine two ingredients with the same flavor molecules, like cheese/bacon or asparagus/butter. The most bizarre one in a 2011 Harvard study is probably blue cheese/chocolate, which share 73 flavors. On the other hand, food-bridging is when you take two ingredients that don’t share any flavors, like apricots/whiskey, and bridge them with an ingredient that shares commonalities with both, like tomatoes.

Yong-yeol Ahn and his colleagues explore the nuances of flavors and recipes in their 2011 research, which you can find here. But if you want the abridged summary, there’s a great one on Frontiers. Yet, as one of the co-owners of a critically-acclaimed molecular gastronomic restaurant told me not too long ago, take the research with a grain of salt. Food science is still extremely nascent and lacks consistent data points, especially across cultures.

Looping Back

Just like a complete flavor map has all of its ingredients working in cohesion with one another, a strong team needs to hold the same level of trust and respect. I’m not advocating that you need to agree with everyone on your team. In fact, disagreement on warranted grounds is better. But to be a well-oiled machine, a team can only be agile if you reduce the unnecessary friction that may exist now or arise in the future.

Although it is important that every team member can ‘food-pair’ with every other member, what I believe is more important is to have a fair mitigation system to ‘food-bridge’ all current and future disagreements. A system to resolve disputes and to prioritize tasks at hand. To have not only trust in each other, but also in the system design.

The cherry on top

Of course, I don’t know if Stan just forgot to set up times for his team to meet with the potential hire between his various tasks of running a business. Or if he had something he wanted to hide from his team. Regardless, his decision, or I guess, lack thereof to do so, would be detrimental to the delicate string of trust that connected his team to him.

To his and every other founders’ credit, there are often matters that seem obvious to an observer, but less so, when one has skin in the game – some degree of emotional attachment. And the deeper one is in the weeds, the harder it may be to follow rational behavior. Loosely analogized to the boiling frog problem. That said, some actions are excusable. These can often be caught by either a mentor or a close friend/family member. But there are a handful that aren’t. The same can be said on a macroscopic perspective as well. Between friendships. Lovers. Coworkers. You name it.

And, luckily for Stan, this falls under the former.

Top Photo by Hessam Hojati on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups!

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Tracking What Customers Love

focus, lens, product-market fit is fluid, how to find product market fit

Product-market fit is fluid. Just because you’ve attained it once doesn’t mean you’ll have it forever. The market is constantly changing. And that means the intersection where supply meets demand will always be changing as well. That said, regardless of how and where you move to, you’ll always have a subset of your customers who aren’t happy. Who might miss the old ways. Who might wish for something else entirely.

To put it into perspective, I’m going to quote Casey Winters (his blog), the current Chief Product Officer at Eventbrite:

“Product-market fit isn’t when your customers stop complaining, it’s when they stop leaving.”

Retention and its Touch Points

If you run a business, you’re going to have a leaky funnel. Your job is to minimize the leaks. Double down on not just adoption, but especially retention. What does that mean? Engagement and the often, overlooked category, for many early-stage teams, re-engaging those that have become inactive over a set period of time. Whether 30 days or 7 days. It depends on what solution your product is providing for the market and how frequently you normally expect them to use the product. For example, for most consumer apps, as investors, we expect a minimum of usage for 3 days out of the 7 calendar days a week. So I characterize inactivity aggressively as after a month of inactivity.

In the past few months, since the health and economic crisis began, the conversation has shifted from ‘growth at all costs’ to profitability. And similarly, from an overemphasis on adoption to a better understanding of retention.

Speaking of retention, 2 days ago, the afore-mentioned Casey Winters and Lenny Rachitsky published their homework on the the dichotomy between good and great retention, which you can find here and here, respectively. Their research provides some useful touch points about “golden” numbers from some of the smartest people in the industry. Of course, as their research suggests, everyone’s “golden” number is different. At different points in time.

So, how are you tracking how lovable your product is?

One of my favorite ways to track what keeps users coming back for more is the Depth vs. Breadth graph. Plotting how long people use certain features and how often they click into it. You can easily substitute length of time (depth) with the number of actions taken for each product feature you have. Or as you grow into having multiple product offerings, this graph works just as well.

depth vs breadth graph, retention, product features

Below are just a few examples of breadth and depth metrics:

BreadthDepth
# of logins/week# actions/session
Session countSession time length
D1/D2/D7/D30 sessions# concurrent devices logged in
Platform-specific sessions
DAU/MAU
# paid users/ # total

The above graph should also help you better optimize your features/offerings. For instance, let’s say you’re a startup in your growth stages. Going by Reid Hoffman‘s rule of thumb for budgeting, spend:

  • 70% on your ‘popular‘ product offerings,
  • 20% on your ‘niche‘ product offerings,
  • And 10% exploring your any hidden gems in your ‘broad‘ quadrant.

In closing

If you have your finger on the pulse about what your customers love about you at all times, you’ll be able to create a more robust product. As a final note, I want to add that while this piece has been dedicated to what your customers love, please always keep in mind what they hate as well. And why they hate what they hate. Who knows? You might discover a larger secret there.

Photo by Paul Skorupskas on Unsplash

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How Fictional Worldbuilding Applies to Building Startup Narratives

startup narratives, trees, forest, fantasy, science fiction, worldbuilding

Last week I spent some time with my friend, who joined me in my recent social experiment, brainstorming and iterating on feedback. Specifically, how I could host better transitions between presentations. She left me with one final resonating note. “Maybe you would’ve liked a creative writing class.”

I’ve never taken any creative writing courses. I thought those courses were designed for aspiring writers. And given my career track, I never gave it a second thought. Well, until now. I recently finished a brilliant fictional masterpiece, Mistborn: The Final Empire written by #1 New York Times bestselling author, Brandon Sanderson. So, that’s where I began my creative journey.

In my homework, I came across his YouTube channel. One of his lectures for his 2020 BYU writing students particularly stood out. In it, he shares his very own Sanderson’s Laws.

The three laws that govern his scope of worldbuilding are as follows:

  1. Your ability to solve problems with magic in a satisfying way is directly proportional to how well the reader understands said magic.
  2. Flaws/limitations are more interesting than powers.
  3. Before adding something new to your magic (setting), see if you can instead expand what you have.

Outside of his own books, Sanderson goes in much more depth, citing examples from Lord of the Rings, Star Wars, and more. So, if you have the time, I highly recommend taking one and one-fifth of an hour to hear his free class. Or if you’re more of a reader, he shares his thesis on his First Law, Second Law, and Third Law on his website.

But for the purpose of this post, the short form of the 3 laws suffices.

The First Law

Your ability to solve problems with magic in a satisfying way is directly proportional to how well the reader understands said magic.

The same is true in the world of entrepreneurship. Your ability to successfully fundraise is directly proportional to how well the investor understands your venture. Or more aptly put, how well you can explain the problem you are trying to solve. This is especially true for the 2 ends of the spectrum: deep tech/frontier tech startups and low-tech, or robust anti-fragile products/business models. Often times, the defensibility of your product comes down to how well people can understand what pain points you’re trying to solve. You may have the best product on the market, but if no one understands why it exists, it’s effectively non-existent.

Though not every investor will agree with me on this, I believe that too many founders jump straight into their product/solution at the beginning of their pitch deck. While it is important for a founder to concisely explain their product, I’m way more fascinated with the problem in the market and ‘why now?’.

You’re telling a story in your pitch. And before you jump into the plot (the product itself), I’d love to learn more about the setting and the characters involved (the underlying assumptions and trends, as well as the team behind the product). As my own NTY investment thesis goes (why Now, why This, why You, although not in that particular order), I’m particularly fascinated about the ‘why now’ and ‘why you’ before the ‘why this’. And if I can’t understand that, then it’s a NTY – or in millennial texting terms, no thank you.

My favorite proxy is if you can explain your product well to either a 7-year old, or someone who knows close to nothing about your industry. Brownie points if they’re excited about it too after your pitch. How contagious is your obsession?

The Second Law

Flaws/limitations are more interesting than powers.

Investors invest in superheroes. The underdogs. The gems still in the rough. And especially now, at the advent of another recession and the COVID crisis, the question is:

  1. How much can you do with what little you have?
  2. And, can you make the aggressive decisions to do so?

I realize that this is no easy ask of entrepreneurs. But when you’re strapped for cash, talent, solid pipelines, are you a hustler or are you not? Can you sell your business regardless? To investors? New team members? Clients/paying users?

On the flip side, sometimes you know what you need to do, but just don’t have the conviction to do so, especially for aggressive decisions. You may not want to lay off your passionate team members. Or, let go of that really great deal of a lease you got last year. You may not want to cut the budget in half. But you need to. If you need to extend what little you have to another 12-18 months, you’ve got to read why you should cut now and not later. Whether we like it or not, we’re heading into some rough patches. So brace yourselves.

But as an investor once said to me:

“Companies are built in the downturns; returns are realized in the upturns.”

The Third Law

Before adding something new to your magic (setting), see if you can instead expand what you have.

And finally consider:

  • Can you reach profitability with what you have without taking additional injections of capital?
  • Can you extend your runway by cutting your budget now?
  • But if you need capital to continue, do you need venture capital funding? I’m of the belief, that 90% of businesses out there aren’t fit for the aggressive venture capital model.

How scrappy are you? How creatively can you find solutions to your most pressing problems? And maybe in that pressure, you may find something that the market has never seen before.

In closing

Like a captivating fantastical story, your startup, your team, your investors, and especially you yourself, need that compelling narrative. The hardest moments in building a business is when there’s no hope in sight – when you’re on the third leg of the race. In times of trial, you need to convince yourself, before you can convince others. To all founders out there, godspeed!

And as Sanderson’s Zeroth Law goes:

Always err on the side of what’s awesome.

If you’re interested in the world of creative writing or drawing parallels where I could not, check out Brandon Sanderson’s completely (and surprisingly) free series of lectures on his YouTube channel.

Photo by Casey Horner on Unsplash

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#unfiltered #12 Spilling the Beans – Sharing Insights

idea maze, spilling the beans, sharing secrets

Yesterday, having read my most recent blog post on social experiments, one of my friends asked me why I decided to finally start the blog. My simple answer was “to make myself obsolete”. The question that inevitably followed was:

“Why?”

Although not incredibly common, I’ve had a very small handful of friends and family ask me similar questions. All of which either directly ask or border “Why share all my secrets?”. Admittedly, all is subjective in this case, as I’m not keen on posting my social security or my social media log-in information on here.

  1. Wouldn’t I be more competitive in this saturated (although I argue otherwise) market if I kept them to myself?
  2. On a startup front, wouldn’t sharing the rationale of others and my own enable founders to “game the system?”

In response to (1), your competitive edge in the 21st century isn’t how many ideas you’ve hoarded, but how many you’ve executed on. And frankly, if we can cooperate to build a better world, why not?

For (2), if founders can “game the system” just by reading my blog, which requires them to have concrete evidence for growth and the questions fellow investors and I pose, well then, it’d be a great example of “faking it till they make it”. My blog merely provides a framework, plus a few stories, to how some of the smartest people around have overcome their obstacles. By the time the system tests them, I hope they’ll conquer the adversity in front of them and have the discipline to push forward.

What’s inside the black box?

I’m extremely happy to share “my” secrets. And I use the term secrets loosely, much like Peter Thiel does in his book Zero to One. In fact, the only reason I have any insight into life is that experienced experts were generous enough to share theirs with me. In other words, none of my insights are truly original. All are borrowed from the best, until I create a version that I resonate with more.

Simply put, if my ‘secrets’ and insights help even just one person out there to live a better life, then I’m a happy camper. My goal is to make the future a better place to live in. Oddly enough, it also happens to be one of the reasons I’m in venture capital. Only by sharing what I believe to be right and morally right am I able to help move the needle, if only by a little bit. As I’ve mentioned before, I’m a huge fan of people going through the idea maze and spending time and effort on insight development. If I can help catalyze those motions in my readers through my blog, then I’ll toast to that.

The Flip Side

However, I should mention there are secrets that I will carry to the grave with me. For instance, outside of the obvious, like SSN and credit card info, ones that…

  • My friends/colleagues tell me in confidence,
  • Cause more harm than good in the world,
  • Cause more harm than good to the people around me,
  • Carry malicious intentions,
  • And/or reveal why I put OJ in my breakfast cereal.

Stay curious!

Photo by Tijana Drndarski on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

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